Enforcing Consumer Protection Laws
The Federal Reserve has a comprehensive program to examine financial
institutions and other entities that it supervises to ensure compliance with
consumer protection laws and regulations. Its enforcement responsibilities
generally extend only to state chartered banks that are members of the Federal
Reserve System and to certain foreign banking organizations. Other federal
regulators are responsible for examining banks, thrift institutions, and credit
unions under their jurisdictions and for taking enforcement action.
Each Reserve Bank has specially trained examiners who regularly
evaluate banks’ compliance with consumer protection laws and their Community
Reinvestment Act (CRA) performance. Most banks are evaluated every forty-eight
months, although large banks are examined every twenty-four months and poorly
rated banks are examined more frequently.
To make the most effective and efficient use of resources while
ensuring compliance with consumer protection laws and regulations, the Federal
Reserve uses a risk focused approach to supervision, focusing most intensely on
those areas involving the greatest compliance risk. Examinations always include
a comprehensive assessment of an institution’s CRA performance in order to
present to the public a full and fair portrait of the institution’s efforts.
Examiners also assess the broad range of large complex banking organizations’
activities to determine the level and trend of compliance risk in the area of
consumer protection.
In accordance with the Community Reinvestment Act of 1977, the Federal
Reserve reviews a bank’s efforts to meet the credit and community development
needs of its entire community, including low and moderate income neighborhoods;
for example, it looks at the extent to which a bank has programs that contribute
to the building of affordable housing and to other aspects of community
development. When deciding whether to approve an application for a bank
acquisition or merger or for the formation of a bank holding company, the
Federal Reserve takes into account an institution’s performance under the CRA.
An important aspect of the process is that it gives the public the opportunity
to submit written comments on the proposal. These comments, which often provide
insight into a financial institution’s CRA performance, are reviewed by Federal
Reserve staff and considered by the Board when it evaluates an application.